Introduction to Construction Contracts

A construction contract, sometimes also known as a construction contract agreement, is a document that outlines the specifics of a construction project including the timeline of completion, the relevant parties involved in the project, and the project budget.

A construction contract is important for all parties concerned with the carrying out of a construction project, including the person requesting the work and the general contractor, who is responsible for all work carried out (even the work performed by subcontractors).

Because of this, it’s a good idea to familiarize yourself with the some of the basics of a construction contract before hiring a professional construction attorney to safeguard your project timeline. You could either be a homeowner contemplating a renovation that requires a number of workmen, or a contractor examining contract templates and trying to decide what information should be prioritized. In any case, it’s sensible to examine the types of construction contracts:

Essential Components of Construction Contracts

Contact Details

This is one of the elements of construction contracts that is often forgotten about. Always include the full name (including middle name, if appropriate) and address of both parties (for example, the homeowner and general contractor) in any construction contract in order to make the document legally binding.

Project Description

A thorough and detailed description of the project should be included in the contract. The project description includes the scope of work to be carried out, a description of materials used in the construction process, a work schedule or timeline of completion, and an outline of the relevant specifications and quality of the work being provided.

One more thing: you may also want to include details about any permitting requirements. It is the role of the contractor to obtain permits for a construction project.

Price and Payment Schedule

It is the responsibility of a contractor to determine a final budget for the proposed project. There are a number of items that should be included in the overall price, including a budget for subcontractors, cost of materials, any specialized equipment or additional factors relevant to the specific project, and the cost of any permit and inspection approvals to be obtained.

As well as the overall price, the contractor and customer agree to a payment schedule, the details of which are laid out in the contract. Specifics of the payment schedule often includes relevant information such as payments dates, frequency, amount, and interest or penalty for late payments (if applicable).

Note: Contractors are not paid the entire amount upfront. The customer often pays a down-payment in order to establish trust. If you wish to calculate what the estimated down-payment should be, consider the total cost of the materials. Usually the down-payment should, at the very least, cover the cost of the materials being used in the project so that the contractor does not have to pay for them out-of-pocket.

Payment Bonds

If a contractor buys supplies from an outside seller, then doesn’t pay for them, the customer can be penalized. In order to avoid this, contracts often contain a payment bond. A payment bond is an official promise, often issued by an insurance company or a bank, that guarantees that all material, equipment and labor will be paid even if the contractor doesn’t meet the terms of the contract. As a contractor, including this in your contract will put your customers at ease and help to establish trust. This will create a ripple effect: word-of-mouth advertising will promote you and your company as reliable and trustworthy.

Signs of a Well-Written Construction Contract

There are some useful tips for writing a construction contract that will inevitably speed up the process:

Flexibility

Construction contracts often allow some flexibility in the contract to allow for changing circumstances throughout the project. As an efficient contractor, it is in your best interest to generate a contract that allows some flexibility to avoid having to scrap the entire contract and begin the process anew with the manifestation of any unforeseen factors in the build.

Inform Yourself

In order to comply with contract laws, do some research about what specific laws are relevant to your line of work, and ensure these appear clearly and concisely in the contract. Contract laws include governing laws, liens requirements, claims procedures, and liquidated damages. The general rule of thumb is that the more items you include in the contract, the more coverage you have for potential mishaps during the completion of the project.

Still Uncertain?

Even if you feel capable of drafting your own construction process using tools or resources across the web, it’s highly recommended to get a professional to do it for you to minimize risk and the chance of future legal complications. Industries that require legally-binding contracts to provide for unforeseen circumstances such as construction stand to particularly benefit by hiring a lawyer, who will work with you in order to create a tailored contract that is customized to the specifics of the professional relationship you’re entering into. Of course it carries some cost, but a competent construction attorney can deliver a sizeable return on investment by avoiding issues and complications in your project down the road. The composition of a legally-binding document can be overwhelming, and it’s much easier and just to get a professional construction attorney who knows the law and has an eye for construction contracts to do it.